29/10/2007 CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE (CSESCE) UCL SSEES Centre for the Study of Economic and Social Change in Europe ‘OLIGARCHS’, BUSINESS AND RUSSIAN FOREIGN POLICY: FROM EL’TSIN TO PUTIN Peter J S Duncan University College London, School of Slavonic and East European Studies, [email protected] Economics Working Paper No. 83 October 2007 Centre for the Study of Economic and Social Change in Europe UCL School of Slavonic and East European Studies Gower Street, London, WC1E 6BT Tel: +44 (0)20 7679 8519 Fax: +44 (0)20 7679 8777 Email: [email protected] ‘Oligarchs’, Business and Russian Foreign Policy: From El’tsin to Putin1 Peter J S Duncan2 [email protected] Abstract The paper investigates the role of private and state-controlled business in the formation and implementation of Russian foreign policy since the collapse of the Soviet Union. The extent to which the ‘oligarchs’ and business more generally followed their own interests in their external relations or acted as tools of the Russian state is a particular focus. Under President Boris El’tsin, Boris Berezovskii was the only one of the oligarchs to have significant influence on Russian foreign policy. President Vladimir Putin’s moves against were the oligarchs motivated partly by the desire to restrict political debate, including on foreign policy, and partly to prevent Mikhail Khodorkovskii from creating a private oil pipeline system which would have subverted Putin’s foreign policy, but the main reason was probably the desire to restore state control over key industrial sectors. Under El’tsin, business had followed its own interests, which sometimes conflicted with Russian foreign policy and sometimes reinforced it; but after Putin’s attacks on the oligarchs, business seemed more integrated into policy implementation, while still following its own interests where they did not conflict with those of the state, as is suggested by a discussion of Gazprom’s foreign policy role. 1 I am grateful to the British Academy for a place on the exchange with the Russian Academy of Sciences, and to the Institute of World Economy and International Relations for hosting my visit to Moscow. I am also grateful to friends and colleagues at the Moscow State Institute of International Relations (University) for their patient help; and to staff and students of the Post-Soviet Press Group at UCL SSEES. This is part of a study of the relationship between domestic change and foreign policy change in Russia from El’tsin to Putin, which will be published in the Routledge BASEES series. I thank Christopher Gerry and Alan Ingram for comments on an earlier draft. 2 Department of Social Sciences, School of Slavonic and East European Studies (SSEES), University College London 1 The role of the tycoons who emerged to become extremely wealthy and powerful in the 1990s in Russia under President Boris El’tsin and the decline in their political influence under President Vladimir Putin has attracted considerable attention. David Hoffman’s The Oligarchs, probably still the standard work, has been joined by Marshall Goldman’s The Piratization of Russia and Stephen Fortescue’s Russia’s Oil Barons and Metal Magnates.3 Little work has been done, however, on the impact of these oligarchs, as they became known, and their political rise and fall, on Russian foreign policy. This paper will seek to address this gap. One of the reasons for Putin’s attack on the oligarchs was to make business in general more obedient to the wishes of the state. There is a continuing debate as to how much businesses under Putin pursue their own commercial interests or the political interests of the state, or even whether it is possible to separate the two.4 This paper will attempt a contribution to that debate. I begin by seeking to define what is meant by the ‘oligarchs’, how the use of the term has changed, who they were in the 1990s and who they are today. The political importance of the oligarchs under El’tsin is then assessed, particularly in relation to Russian foreign policy. Following this, I look at the reasons for Putin’s attacks on the oligarchs, and discuss the impact of their political decline on foreign policy. I examine the foreign activity of the Russian energy company Gazprom, which is accused of acting as an instrument of the Russian state, in order to investigate the balance of its pursuit of commercial and political interests. Finally I consider the overall impact of the oligarchs and of Putin’s attempts to reassert state control over business on Russian foreign policy. Who were and are the ‘oligarchs’? Although the word ‘oligarch’ (oligarkh) is widely used in Russia and consequently outside Russia to refer to extremely wealthy Russians, it is not easy to come to a precise definition. Stephen Fortescue notes that specialists often follow President Vladimir Putin's definition as ‘These people who fuse power and capital’, thereby omitting heads of state-owned enterprises.5 The term was originally used in the context of post-Soviet Russia mainly to refer to the group of seven or so bankers who applied their vast wealth and influence to ensure the re-election of Boris El’tsin as President in 1996. Boris Berezovskii, who today is still the most politically active of them, albeit now from his London exile, praised the achievements of the seven in an article in the London Financial Times in November 1996. He boasted of their political success and influence, and claimed (exaggeratedly) that they owned up to half the economy. He identified the seven as himself, Vladimir Potanin, Vladimir Gusinskii, Mikhail Khodorkovskii, Aleksandr Smolenskii, Mikhail Fridman and Petr Aven.6 David Hoffman adds Vladimir Vinogradov to this list, while Stephen Fortescue omits 3 David E. Hoffman, The Oligarchs: Wealth and Power in the New Russia, Oxford: Public Affairs, 2002; Marshall I. Goldman, The Piratization of Russia: Russian Reform Goes Awry, London: Routledge, 2003; Stephen Fortescue, Russia’s Oil Barons and Metal Magnates: Oligarchs and the State in Transition, Basingstoke: Palgrave Macmillan, 2006. 4 Of particular significance here is Andreas Wenger, Jeronim Perovic and Robert W. Orttung (eds), Russian Business Power: The Role of Russian Business in Foreign and Security Relations, London: Routledge, 2006 (although it does not have much to say about the impact of the oligarchs). 5 Fortescue, Russia’s Oil Barons, pp. xi-xiii. 6 Andrei Fadin, ‘The Oligarchs in Charge of “Russia Inc.”’, Transition, 3, 6, 4 April 1997, p. 28, citing Berezovskii’s article in the Financial Times, 1 November 1996. Fadin was a correspondent of the liberal Moscow Obshchaia gazeta. He was killed in a car accident in November 1997. 2 Aven.7 As well as their banking interests, these individuals had used their proximity to federal and municipal power structures in Moscow to acquire assets in other sectors, notably oil, metals, communications and the media, in particular through the ‘loans for shares’ schemes of 1995. The late Andrei Fadin noted in 1997 that the term ‘oligarch’ also sometimes included the heads of the partially state-owned Gazprom and Lukoil, Rem Viakhirev and Vagit Alekperov, and the head of the state-owned savings bank Sberbank, Andrei Kazmin.8 Before long, the Russian media were using the term to describe more generally the owners and heads of the largest private and state-owned enterprises, such as Anatolii Chubais, now head of the state-owned electricity monopoly Unified Energy Systems. With some hesitation, one can even include Viktor Chernomyrdin, Prime Minister from December 1992 to March 1998, because of his role in the establishment of Gazprom and his appointment after being sacked from the government as Chairperson of the Gazprom Council of Directors. While he was Prime Minister, two close relatives still held positions in Gazprom and he was believed to have a shareholding; his party ‘Our Home – Russia’ was derisively referred to as ‘Our Home – Gazprom’. (Nevertheless, Gazprom hedged its bets in the 1990s by also giving financial support to the Communists, who could be relied upon to resist liberal attempts to break up the monopoly.9) Following the re-election of El’tsin in July 1996, the original oligarchs were placed to receive rewards, not only in the form of further preferential treatment in the privatization process, but also in taking charge of posts in the presidential administration and government. This period was known as the semibankirshchina, the rule of the seven bankers. Potanin was appointed First Deputy Prime Minister, with responsibility for the economy; according to Fadin, he was chosen because he was the only one of the seven bankers who was not Jewish.10 In October, Berezovskii was appointed Deputy Secretary of the Security Council. The open fusion of economic and political power in the late 1990s represented the height of the oligarchs’ influence. The rouble crash and government default of August 1998 and the appointment of Evgenii Primakov as Prime Minister were seen as sharply reducing this power. Vinogradov and Smolenskii lost most of their assets in the rouble crash, while Primakov sought to undermine Berezovskii’s influence in the Kremlin. In 1999, however, Berezovskii fought back, securing Primakov’s removal in May and then using his wealth, connections and media to organize support for the Unity movement and Vladimir Putin in the State Duma elections of December 1999 and the Presidential election of March 2000. Putin has greatly reduced the political influence of the oligarchs. Gusinskii and Berezovskii are in exile and Khodorkovskii is in prison. Gazprom is now led by Putin’s appointee, Aleksei Miller, who worked with him in the office of the St Petersburg Mayor Anatolii Sobchak.